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Disruptor Roundup: Divvy Takes on Rent-to-Own

Editor’s Note: The Disruptor Roundup analyzes companies implementing unconventional models.

Divvy
This tech-powered, rent-to-own platform was launched at the end of 2017, and provides consumers with the ability to transition from renting to homeownership with a three-year program that amasses a down payment within its required monthly payments. Currently available in Atlanta, Cleveland and Memphis, Divvy is looking to expand to other markets.

Divvy purchases homes on behalf of consumers. There are, however, restrictions. Divvy cannot purchase and lease condos, non-bank approved short sales, auction properties, manufactured or mobile homes, undeveloped lots, homes in pre- or mid-construction or properties with problematic conditions that require extensive maintenance.

How does the program work? Applicants must first be preapproved and undergo a thorough underwriting process that requires photo identification, tax returns, recent bank statements and a credit check. This process typically takes between 24 hours and three business days, according to the Divvy website.

In addition to rent, Divvy also charges “equity credits,” which make up about 25 percent of the monthly payment and are used as down payment funds at the end of the leasing period. Additionally, 5 percent of the monthly payments go toward maintenance funds, to be used for any home repairs, which applicants must address themselves, as Divvy does not function as a traditional landlord.

The qualifications? Candidates must:

  1. Have been employed for the last 12 months
  2. Have an average monthly income of at least $2,300 per month
  3. Be able to comfortably afford a Divvy monthly payment (rent, equity credits, maintenance funds)
  4. Have a credit score of at least 550
  5. Have had any bankruptcies discharged at least 12 months prior to applying
  6. Have at least $1,300 saved for a down payment

The cons? First, Divvy customers may only use partnered agents, which highly limits buyers. How are these agents chosen? Divvy does not provide guidelines on its website, and was not available for comment.

Additionally, while this incentivizes homeownership for prospective buyers who have trouble building up a down payment, the leasing program is more of a forced savings program in which they risk losing out on funds if they break the lease and choose not to purchase the home. Divvy will only refund 50 percent of the total dollars of equity credit if the three-year lease is broken, and, at closing, deducts 1.5 percent of the applicant’s equity credits in order to cover its own selling costs.

Buyers might also be wary of Divvy’s static home value projection, which estimates how much the property will be worth in three years. It can be difficult to ascertain whether buyers are truly leasing to buy at fair market value three years prior to the actual time of purchase.

As Divvy does not provide mortgage services, buyers will still need to be approved for a loan at the end of the lease period, which brings up additional questions regarding the home’s value and appraisal conditions. Divvy can report on-time rental payments to the credit bureaus during the three-year lease in order to help applicants who wish to increase their credit score before purchasing, improving their chances of being able to qualify for a home loan.

Dominguez_Liz_60x60_4cLiz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.

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Borrower Beware: Soon It Will Be Tough to Unload College Loans

(TNS)—Here’s a good reason to think twice about taking out piles of student loans after watching a catchy TV ad for a for-profit college.

The U.S. Department of Education is on a path to make it far tougher to get federal college loans forgiven using the argument that the school cheated you out of a good education by misleading you about job prospects or engaging in fraud.

The new rule—now under a public comment period—would apply to students seeking loans after July 1, 2019.

Consumer watchdogs, of course, charge that bad actors are getting a pass here. It would be up to students to prove that the school knowingly made false statements. What’s most troubling is that we’re often talking about low-income students, minority students or military veterans who have taken out loans to attend for-profit schools as they seek to build a better life and get training for a good-paying job.

Education Secretary Betsy DeVos has said the proposal lays out clear rules schools must follow, while protecting students from fraud. The administration maintains that the current rules had been too broadly interpreted, leaving taxpayers on the hook and opening the door for frivolous claims.

Yet many borrowers could be burned here. We’re looking at yet another reminder of why it’s savvy to be skeptical when costly for-profit colleges aggressively recruit you and make breathless promises about grants and financing.

All graduates don’t get good jobs.
Some schools do go out of business unexpectedly; others provide misleading claims and don’t provide a degree that employers really value.

Two years ago, for example, ITT Tech shut its doors following sanctions by the U.S. Department of Education. The sudden shutdown meant that students were able to seek a discharge of federal student loans—but not private student loans—from the federal government. For-profit Corinthian College closed its campuses in 2015, leaving students unable to complete their programs.

Often consumers find the pitch surrounding some for-profit programs very appealing. They’re looking to get on the fast path to a new, more promising career. Yet many students borrow heavily—too heavily—to chase those dreams.

Robin Howarth, senior researcher for the Center for Responsible Lending, says there’s growing concern that students attending for-profit schools can end up owing a great deal of money but only have limited potential for obtaining a job with a substantial paycheck in return.

The consumer watchdog group released a report in June that indicated, for example, that students face very high tuition and fees at for-profit colleges in order to receive training for healthcare support jobs. Many students borrow most of the money, but the jobs they find don’t pay enough to cover their living expenses and all that debt.

“Students need to pay very close attention to what kind of earnings are achieved,” Howarth says.

It’s important to look beyond average salaries in the medical field and look at the kinds of jobs obtained by students who attended that program.

Many times, Howarth says, earnings for similar programs are less when the student has attended a for-profit school than if the student studied a similar program at a public or private nonprofit college.

Often, Howarth says students may be better off obtaining training at a community college at a far lower cost.

Proving fraud isn’t easy for student borrowers.
Kurt O’Keefe, a Grosse Pointe Woods attorney who has a blog called “Discharge Student Loans,” says student borrowers would still face significant challenges under the new rules, if they want to try to get loans forgiven if they claim they were defrauded by the schools.

“Failing to deliver requisite skills and knowledge is a tough one to litigate,” O’Keefe says. “The schools will say the student just failed to learn.”

In addition, he noted that many who find themselves in such circumstances are from lower-income families and cannot afford to take legal action.

“A right that costs money to exercise, legal fees for your lawyer, does not help much when you are talking about people who cannot pay their loans to begin with,” O’Keefe says.

O’Keefe says the real problem is one that he refers to as “the triangle.”

“The schools get the money whether the student gets value or not, the government (usually) lends the money and chases the borrower for repayment. The schools have no skin in the game,” he says.

Part of the draft rules would allow the Department of Education to seek reimbursement for forgiven student loans from the institutions and that is good, he says.

“It would hurt scam schools and schools with scam programs, and could be used against any institution, public or private,” O’Keefe says.

Under a current regulation, borrowers with federal student loans might be able to get debt relief when they claim they were misled about the cost and quality of the education. It’s called the “Borrower Defense to Repayment” rule.

The Education Department notes students may be eligible for borrower defense regardless of whether your school closed or you are otherwise eligible for loan forgiveness under other laws.

Consumers with questions or pending claims regarding borrower defense may call the Department of Education’s hotline at 855-279-6207 from 8 a.m. to 8 p.m. weekdays. As of January, the Department of Education has received 138,989 claims—and 23 percent had been processed. The bulk of the claims processed were associated with Corinthian and ITT.

New rules would save the government billions.
The proposed change in regulations would significantly limit the situations under which borrowers could qualify for financial relief, says Mark Kantrowitz, publisher and vice president of Research for Savingforcollege.com.

“The changes appear intended to primarily reduce costs to the federal government,” Kantrowitz says. “While the previous regulations may have been too permissive—allowing cancellation of debt based on just accusation of wrongdoing—the new regulations go too far in the opposite direction. As the lender, the federal government should have some responsibility to the borrower.”

It’s estimated that the new proposal could save the federal government nearly $13 billion over the next decade.

It’s a substantial savings, given that the Education Department had put a $14.9 billion price tag over the next decade for the program under the more-broadly defined regulations.

The new regulations would permit the U.S. Department of Education to provide partial relief instead of cancelling all of the borrower’s loans, depending on the level of harm suffered, he says.

Under the new rules, borrowers would need to prove that the college intended to defraud—a very difficult standard.

Also significant: Only borrowers already in default could apply for relief under the proposed rules. As a result, a borrower who was actively repaying the loans wouldn’t get help.

“This might lead some borrowers to intentionally default on their federal student loans,” Kantrowitz says.

Defaulting can seriously harm your credit score, and drive up borrowing costs when you want to take out a car loan, home mortgage or open up a credit card. A default will be reported to credit bureaus.

Most often, you do not want to go into default. If you default on student loans, you will be subject to collection charges and wage garnishment, and the government can seize your income tax refund, too.

©2018 Detroit Free Press
Distributed by Tribune Content Agency, LLC

For the latest real estate news and trends, bookmark RISMedia.com.

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Is a State With No Income Tax Better or Worse?

(TNS)—Is it better to live in a state with no income tax?

It’s a great question to ask, especially when considering how much of our paycheck is already set aside for Uncle Sam. Seven U.S. states forgo individual income taxes as of 2018: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. Residents of New Hampshire and Tennessee are also spared from handing over an extra chunk of their paycheck, though they do pay tax on dividends and income from investments.

The main benefit of eliminating the individual income tax, proponents say, is that states with no income tax on residents become beacons for growth. They’re better at creating jobs and keeping a core of young, educated workers from moving to other states.

The American Legislative Exchange Council [conservative, generally] reports that over the past decade, the nine states without a personal income tax have consistently outperformed the nine states with the highest taxes on personal income in job creation, population growth and even tax revenues. Others, however, are skeptical about those findings.

“There is no compelling evidence that states without income taxes are outperforming states that have them or even have relatively high rates,” says Michael Mazerov, senior fellow at the Center on Budget and Policy Priorities [generally progressive].

“The research shows that the overwhelming driver of where people choose to live and where people choose to move is job opportunities and family reasons, and state and local taxes are pretty negligible for most households,” Mazerov says.

The issue is undoubtedly controversial. Public opinion usually swings with the size of one’s paycheck and the role people think governments should play in shaping society.

Before taking a side, however, consider these factors.

The New Tax Bill Reduced the Deduction for State Income Taxes
Officials in states with higher individual income tax rates—think California and New York—are less than thrilled about a provision in the new tax code that caps the state and local tax (SALT) deductions that residents can claim at $10,000.

The old tax code allowed taxpayers who opted to itemize instead of take the standard deductions—formerly $6,350 for single filers and $12,700 for couples filing jointly—to deduct all of the property taxes they paid to state and local government agencies, as well as their tally from either sales taxes or individual income taxes.

Since most people rack up more individual income taxes, that is the category they choose to deduct. The changes leave some likely owing more going forward, economists say.

It’s more business as usual for people living in a state without individual income taxes, because those residents were by default either taking the standard deduction or subtracting the amount they paid in sales and property taxes from their federal tax bills. Without making some big purchases or holding a substantial real estate portfolio, it will likely be harder to hit the new $10,000 cap.

There Are Other Ways to Get You
State governments use taxpayer dollars to fund road maintenance, law enforcement agencies and other public services. The funding for those services typically comes from three key areas: property taxes, sales taxes and income taxes, says Stephen Miller, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas.

“You might say it’s like the three legs of stool, so when you take one leg away, the funding stability is reduced,” Miller says. “If you want government services, then the payment of that has to come from somewhere else.”

States without a personal income tax might ask residents and visitors to pay more sales tax on groceries, clothes and other goods, as is the case in Nevada—or, like in New Hampshire, homeowners end up paying more on their property tax bills compared with those in neighboring states.

Tennessee, for example, has the highest sales tax in the country. The Volunteer State, which reviles income taxes so much that voters changed the Tennessee Constitution in 2014 to forbid these taxes for good, charges a 7 percent sales tax statewide. When combined with local sales taxes, the combined rate increases to an average of 9.46 percent, according to estimates from the Tax Foundation. That’s more than double the combined rate in super-touristy Hawaii.

In New Hampshire, homeowners pay some of the highest effective property taxes in the nation, according to an analysis by ATTOM Data Solutions. The Granite State also continually ranks poorly for contributing funds to higher education, and holds some of the most expensive two-year and four-year colleges in the nation when looking at average tuition and fee prices, according to the College Board.

In Washington, pump prices are routinely among the highest in the country, in part because of a sky-high gasoline tax. As of 2018, Washington charges 49.5 cents per gallon in gas taxes, the second-highest in the country, according to The Energy Information Administration.

Elsewhere, Texas and Nevada have above-average sales taxes, and Texas also has higher-than-average effective property tax rates. Florida relies on sales taxes, and its property taxes are above the national average. Wyoming and Alaska make up for the lost income tax revenue through their natural resources. Both states enjoy hefty tax revenues from coal mining and oil drilling operations.

All of those extra taxes contribute to higher-than-average living expenses in some of those states. Florida, South Dakota, Washington and New Hampshire all have higher than the median cost of living, according to data compiled by the Center for Regional Economic Competitiveness. Alaska is among the most expensive places to live, but a big part of that is because it’s so remote.

More Pressure on the Poor
While the jury’s still out on the benefits of living in a state with no income tax, experts agree that there is one clear result for those states that do levy an income tax: It helps the poor.

An income tax is a classic tool for redistributing wealth. It’s usually “progressive” in nature, meaning that it taxes higher earners at a greater rate than lower earners. Other taxes typically don’t have that characteristic.

Sales taxes, for example, are considered “regressive.” They don’t change depending on the income level of the consumer. They treat everyone the same. So do levies on food, gasoline and other key consumable items.

These taxes place an unfair burden on the poor, according to research from the Institute on Taxation and Economic Policy (ITEP) [a nonpartisan nonprofit]. The reason is the lowest earners in the state devote the lion’s share of their take-home pay to buying things that are subject to sales taxes. The wealthy, who can save a chunk of their income in their 401(k)s and other investments, have a much smaller exposure to the sales tax.

Don’t Expect an Economic Benefit
Advocates for abandoning personal income taxes are driven by the same line of thinking: Cutting the income tax will boost take-home pay for everyone. It’ll make the state more attractive than its neighbors, drawing new businesses, creating jobs and sparking an influx of talented workers.

But does this really happen? A variety of economic policy groups have pushed back over the past few years, raising questions about whether any of those claims are true.

“If taxes where everything, California would be empty and Wyoming would be bursting at the seams,” says Robert Godby, director of the Energy Economics & Public Policies Center at the University of Wyoming.

When you put the top nine states with the highest individual tax rates against the nine states that don’t go after a piece of workers’ paychecks, data shows team no-tax had a higher average population growth rate from 2006 to 2016—11.9 percent compared to 5.6 percent, according to the ITEP.

However, the ITEP points out “the more significant finding is that the no-tax states have struggled to add jobs at a rate sufficient to keep pace with their growing populations. Employment growth trailed population growth by roughly 41 percent in the no-tax states, compared to 19 percent in the states with the highest top tax rates.”

Wyoming, home to a great deal of the nation’s coal and oil and gas activity, saw one of the larger gaps between job creation and population growth, according to the 2017 report. The Cowboy State traditionally shifts more of the tax burden onto the energy industry. While that might work during boom times, bust times create funding challenges. Other governments that shift the onus away from income earners might also find themselves more susceptible to budget blows, Godby says.

“The problem is when you live in a state without an income tax, it’s really hard to implement one. It’s harder than raising an existing tax because it’s kind of like crossing the Rubicon,” he says. “For a lot of people in Wyoming, not having an income tax is something they feel special about or something that makes Wyoming special.”

©2018 Bankrate.com
Distributed by Tribune Content Agency, LLC

For the latest real estate news and trends, bookmark RISMedia.com.

The post Is a State With No Income Tax Better or Worse? appeared first on RISMedia.

Some Not-So-Tiny Obstacles in the Growing Market for Tiny Houses

(TNS)—When Tom Alsani heard about plans for a tiny-home community in St. Petersburg, Fla., he got so excited he immediately wanted to know more.

“Right now I have a house with three bedrooms, but the kids are gone and I’m trying to downsize,” says Alsani, a quality-control inspector for furniture companies. “To me, a tiny house is very, very attractive. It’s a state of mind; it’s not about how big you have it but the level of contentment and happiness.”

Few housing options have captured the public imagination like tiny houses, seen as an affordable and, yes, adorable antidote to the excesses of modern life. Their appeal is wide—to empty nesters like Alsani, soon to be retired and living on Social Security, to millennials, too burdened with student loan debt to buy a normal-size house, and to vagabonds at heart who like the idea of packing up and hitting the road at a moment’s notice.

But for all the enthusiasm, the tiny house movement isn’t moving very fast. Financing, zoning laws and entrenched attitudes have conspired to limit tiny houses to a tiny percentage of the nation’s housing stock.

“With tiny homes, because it has a new name and is not called an RV or a mobile home, people don’t know how to treat it,” says Preston Melson, a partner in a St. Petersburg company that makes tiny houses.

Today, though, “tiny house” typically means a dwelling of 400 square feet or less on wheels. While the mobility is attractive, it has impeded the widespread acceptance of tiny homes.

Legally, wheeled houses are considered recreational vehicles and are generally restricted to RV parks by county and municipal zoning laws. Many so-called “tiny homers” don’t want to live in RV parks, however, because they cater primarily to vacationers, not permanent residents.

Owners who don’t plan to move their tiny homes can build them as permanent structures on vacant land where zoning permits; thus, the challenge of tiny houses “is where to put them,” Melson says. “That’s the No. 1 enemy.”

Paying for tiny houses is getting easier. Since 2013, SunTrust’s LightStream division has offered tiny-home loans—actually, personal, non-secured loans of up to $100,000—for as long as seven years. Interest rates range from 4.04 percent to 11.04 percent, depending on the borrower’s credit history. (The minimum score is 660, and the applicant must have some assets like a 401(k) or stock.)

Though it has fewer borrowers than for car and home improvement loans, the market for tiny-home loans “punches above its weight,” says Julie Olian, LightStream’s vice president of Public Relations. “Our portfolio has grown as the market has increased. It’s a great way to get a first home and it’s one that’s flexible in terms of where it is [located].”

©2018 Tampa Bay Times (St. Petersburg, Fla.)
Distributed by Tribune Content Agency, LLC

For the latest real estate news and trends, bookmark RISMedia.com.

The post Some Not-So-Tiny Obstacles in the Growing Market for Tiny Houses appeared first on RISMedia.

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